The DG Safeguards earlier recommended imposition of a 20 per cent safeguard duty on certain steel products to protect interests of the domestic industry. (Reuters)

Government today imposed provisional safeguard duty of 20 per cent on import of certain categories of steel with a view to protect domestic producers from recent surge in inward shipments, Finance Minister Arun Jaitley said today.

“This order (imposing duty) comes into effect immediately and a notification in this regard has been issued. This duty will be applicable for a period of 200 days, during which period the inquiry would be completed by Directorate General of Safeguards,” the Minister said.

The duty will apply on specified categories of steel from all countries, he said, adding “over the last few weeks there has been a sudden surge of steel import into the country and therefore DG Safeguard has embarked upon an inquiry.”

He said the power of imposing provisional duty, which was used occasionally in the past also, was invoked in view of sudden surge in imports and subsequent injury to domestic producers.

The duty, he said, will apply to all imports coming from anywhere in the world.

The DG Safeguards earlier recommended imposition of a 20 per cent safeguard duty on certain steel products to protect interests of the domestic industry. The proposal was approved by the Board of Safeguards.

Safeguard duty is a WTO-compatible temporary measure that is brought in for a certain timeframe to avert any damage to a country’s domestic industry from cheap imports.

During the examination of applications of major steel producers like SAIL, Essar Steel and JSW Steel, the DG Safeguards had found “prima-facie increased imports (of certain kinds of steel) have caused or are threatening to cause serious injury to domestic producers…”

Domestic steel producers had complained of a surge in imports of steel products like hot-rolled steel and other variants from China, Korea, Japan and Russia.

The three players, representing 50 per cent of the domestic production, had moved DGS for imposition of the levy on imports of hot-rolled flat products of non-alloy and other alloy steel in coils of width of 600 mm or more for four years.

The domestic industry had requested imposition of provisional safeguard duty in view of a steep deterioration in the performance of this industry in view of the import surge.

Commenting on the safeguard duty, Ind-Ra said the safeguard duty on hot-rolled coils (HRC) would benefit the integrated steel producers.

“Ind-Ra estimates that the landed price of HRC imported from China will be more expensive than domestic steel prices by Rs 2000/t. This will be in stark comparison to the present situation, wherein imported HRC is cheaper by Rs 2000/t than domestic HRC.

“This will also provide headroom to domestic steel producers to increase their prices and volumes, provided Chinese players do not reduce their prices further,” it said.

According to DGS, the market share of domestic producers has been declining since 2013-14 and is likely to fall from 45 per cent to 37 per cent in 2015-16.

The steel producers sought imposition of safeguard duty as it would also cover imports from countries like Japan and South Korea, with which India has free-trade pacts.

Last month, the government had hiked import duty on base metals, including iron and steel, by 2.5 per cent in a move aimed at helping domestic players battling cheap Chinese imports after the currency devaluation by China.

The imports increased to 33,79,360 tonnes in 2015-16 (annualised), from 12,92,099 tonnes in 2013-14. The percentage of import with respect to domestic production rose to 13 per cent, from 5 per cent during the period.

In June, India imposed anti-dumping duty of up to USD 316 per tonne on imports of certain steel products from three countries, including China, to protect domestic producers from below-cost in-bound shipments.

Meanwhile, analysts said the hike in Safeguard duty will benefit the steel sector.

Bank of America- Merrill Lynch (BoFA-ML) said, “While Safeguard duty should benefit the steel industry, the banking system will be a much bigger beneficiary.”

India Ratings and Research (Ind-Ra) the Safeguard duty will be a welcome relief for the steel sector, which is struggling due to cheap imports from China and countries with which India has free trade agreements.

The safeguard duty on hot-rolled coils (HRC) would benefit the integrated steel producers (ISPs) only in the short-term as it is likely to be applicable for only 200 days.

“The safeguard duty is superior to the import duty since it is applicable to all nations unlike the import duty which excludes countries falling under free trade agreements.

“That said, the higher safeguard duty would benefit the ISPs, but negatively impact the companies involved in cold rolling and annealing of HR coils. However, the players could circumvent this by importing HRC with some value addition,” it added.